The CE light comes on for a failure in the emissions system and can be caused by a number of reasons (airpump, fuel delivery system, EGR, O2 sensors, etc.). Have you had the car scanned for codes? By a qualified Volvo specialist?
The mileage is pretty low for a turbo failure, but you want to have this checked out....by someone who knows what they're talking about. (I don't think this is the problem as these turbos usually run to ± 250K miles, but you should put this theory to rest so you can sleep at night.)
One of the first signs of impending turbo failure is oily blue smoke from the tailpipe on high-boost starts, such as from stop signs and red lights, which then seems to clear up a few seconds later. This is caused by a failure of the rear shaft oil seal, which allows pressurized oil to mist into the exhaust manifold. (Oil in the intercooler duct, and carbonized oil on the turbo's exhaust-side impeller are absolutely normal - don't let them tell you need a turbo because they see oil here.)
Another possibility would be the crankcase ventilation system, which may be clogged and thus forcing hot oily crankcase gases to blow by the rings and into your exhaust. In fact, this is more likely.
A failed 02 sensor wouldn't have much to do with whether oil is getting to the exhaust.
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David \\ (98 S70 T5SE Black, misc mods (mostly lighting), red calipers) (92 940GLE)
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